Why Construction Teams Should Be Tracking Way More Than Financials
How do you measure project success? For many of us, it’s easy to see financials as a leading indicator of performance. Is it over or under budget? And by how much? As owners and project executives usually are looking at high-level metrics, it’s easy for teams to get driven purely by the money. In fact, 43% of construction firms prioritize immediate financial goals over organizational resilience. Nevertheless, there are a number of other essential construction KPIs that can signify if a project is on track and provide more actionable insights into what changes need to be made.
Using budget as your primary indicator of performance is a lot like calculating the calories of a cake to assess its healthiness after it’s been baked. While it might be an interesting fact to know for your own interest and perhaps dietary concerns, it’s a little too late to make any changes needed to alter the outcome. On the other hand, if you were to measure and adjust the ingredients during the baking process, you could tweak results for a more desirable outcome (should healthy desserts be your thing).
Clearly, pure financials should not be the main indicator of performance. So, why are they constantly the primary focus of project scrutiny? Other critical measurements need to be taken into account to track constructions progress and productivity–the primary factors that are going to get teams that wanted success. Below, let’s discuss the importance of construction KPIs and critical metrics your company should be measuring to affect profits and productivity.
Construction KPIs: A Breakdown
Tracking and carefully interpreting an array of key performance indicators (KPIs) helps a construction company build long-term resilience while also meeting short-term financial goals. But just in case you need a refresher on the purpose KPIs serves, here is how the Construction Financial Management Association (CFMA) defines them.
CFMA describes KPIs as being vital signs that show whether “your business is functioning according to plan.” It explains that the “key” part of the acronym indicates prioritized metrics.
The “performance” aspect of the acronym refers to ways in which your company operates or behaves. Likening a construction business to an auto engine, CFMA stresses that engine analysis is based on more than miles per gallon. Similarly, although basic construction project metrics concern costs and time, profit isn’t the only performance issue to measure.
As to the “I,” CFMA notes that indicators usually are quantitative data, such as numbers or percentages, that present a quick picture of a condition and its “favorable or non-favorable status.”
The Essential Construction KPIs Your Projects Need
Although your company may measure many details of a project, effective performance analysis requires prioritizing a limited number of key categories of concern for tracking overall project success and company health. These would be both financial and non-financial matters that can be quantified.
Here are types of data these KPIs might scrutinize:
A safer site incurs less risk and long-term costs. If issues do occur, they could set your project back both in time and money. Beyond that, safety incidents can mean higher insurance payments. Therefore, knowing and understanding your safety rating is key to reducing your costs and keeping your staff productive. Important construction safety KPIs include:
- Safety/ incident rate
- Number of safety meetings/communications
- Number of accidents per supplier
Having a better understanding of the total quality of your projects will help reduce changes and rework. Therefore, keeping a thumb on quality metrics is a surefire way to keep on budget and schedule. The following construction KPIs will help your team maintain a high level of quality:
- Number of defects
- Number of defects due to workmanship
- Time to rectify defects
- Number of site inspections conducted
- Ratio of the number of inspection passed to total number of inspection
- Total cost of rework
- Customer satisfaction
- Internal customer satisfaction
Performance metrics can provide a project’s productivity. By measuring and understanding just how time and efforts are being spent, teams can adjust and allocate additional resources or tools to the areas that need them the most to reach project goals. Here are a few KPIs related to construction performance:
- Waste/recycling per job
- Average revenue per hour worked
- Percentage of equipment downtime
- Percentage of labor downtime
While tracking your employees’ performance is crucial for a successful project, measuring their development and satisfaction are also critical for success. Staff who are invested in and happy will be able to work more efficiently for the long-term and contribute more to the bottom line. Not to mention, employee turnover is a major expense and reducing this cost can save teams enormously. The following construction KPIs are vital to employee retention:
- Worker satisfaction
- Training completion percentage rate
- Turnover rate
A Note on Predictive KPIs
The issue of using KPIs as predictive measures is one raised by CFMA, which asserts that performance management should be more than a “rearview mirror” process of analyzing productivity based on historical financials. It suggests a number of ways that KPIs can provide a glimpse into future productivity.
For example, instead of simply viewing financial performance based on past and current projects, CFMA suggests measuring bid development and setting expectations based on actions such as: (1) pending bids; (2) scheduling and completion of business development meetings; and (3) active proposals.
A “subcontractor inventory” is another predictive performance indicator that CFMA recommends. It would be aimed at avoiding tying up cash in the over-purchase of construction materials. CFMA states that a KPI could be designed to predict buildups in unneeded inventory by comparing monthly spending for materials with what already exists.
As to safety, it notes that aside from past figures concerning accident rates or “high number of days without lost work,” a KPI could predict performance based on quantification of planned events such as “the number of safety meetings, communications, notifications, or awards that recognize someone doing something safe.”
Construction Dive magazine also discusses the issue of using KPIs predictively through an analysis of “lagging vs. leading indicators.” The magazine points to “cash flow and receivables” as “backward-looking” or lagging financial indicators.
Leading indicators would be data showing the ongoing progress of a project in such a way that the information can lead to remediation of procedures or work before the construction schedule is badly affected.
Talking about KPI analysis of company data–whether rear-view or forward-looking–the magazine states, “Measurements help bring standardization and repeatability to processes on a jobsite.” So, the quantification of KPIs helps construction companies more accurately predict costs and schedules for future projects.
Implementation and Evaluation
As already noted, successful implementation of construction KPIs requires prioritization of top concerns and selection of appropriate technological support. Other important demands include:
- Standardizing reporting and measurement
- Gaining support by involving key players
- Incentivizing participation
- Measuring progress
- Evaluating the impact and making adaptations
Standardizing reporting and measurement
To get started implementing and evaluating construction KPIs, standards need to be set to ensure accurate input and use of the information. Standardizing construction measurements and processes is easier than ever these days due to digital transformation of our industry. This change encompasses cloud technologies that improve workflow by allowing real-time sharing of files from office to field and back again.
What makes this immediate communication more powerful is the use of standardized workflow processes made possible by standardizing the construction planning software used within a company. Problems occur between the jobsite and front office when the general contractor, field team, designers, and project managers use varying kinds of software.
In its 2017 Construction and Technology Report, JB Knowledge noted that 30% of companies they surveyed reported problems due to not being able to integrate the many applications they use. However, construction companies can achieve integration, track KPI data, and standardize the life cycle of projects by standardizing their own use of software. It helps to select a construction productivity product that is as easy for workers on jobsites to use as for managers in the home office.
In fact, learning how to use construction software is a goal that fits well into a KPI for staff development. Companies can tie incentives to adaptation and reward employee teams for top performance. Staff buy-in also increases when employees who’ve become adept with the software become teachers for those who are new to it.
For adoption of KPIs to work, companies need to encourage all employees to understand and participate in the processes these performance tools encompass. To improve the speed and smoothness of implementation, it helps to provide up-front training for influential key staff–such as the general contractor and other field managers–who are willing to repeatedly demonstrate how and why KPIs are important.
At the same time, these leaders need excellent software support, including virtual and on-site consulting. Everyone needs a hierarchy of support and the knowledge of whom to go to for help.
You might think that participation incentives in any industry would primarily be based on financially rewarding employees. However, a process of mentorship is one of the best motivators available. Key players train up other employees to become trainers themselves. This builds confidence and self-esteem. This principle of a cascade of empowerment works across a multitude of industries. As Inc. magazine indicates, when employers in any business provide effective training, they’re treating staff “in a way that will make them want to stick around.”
Other popular incentives may involve awards and celebrations for meeting or surpassing KPIs. However, these incentives must be clearly connected to expected outcomes and be announced at the outset of implementation.
Another opportunity for gaining buy-in from key employees is to assign key staff responsible for tracking and sharing measurement data company-wide. However, first provide training about how the company’s performance software measures and evaluates progress whether about money matters, quality or employee satisfaction.
Evaluating and Adapting
Be prepared for an ongoing team effort to improve KPIs so they will be as beneficial, relevant and up to date as possible. This means you need to build in time for discussion and adaptation including digital change.
Digital transformation is also an ongoing process. This means both KPIs and new technology you embrace should be viewed from the same perspective. Neither can become static because that won’t improve productivity, profits or company health.
Go Beyond Financials With New Construction KPIs
While keeping a watchful eye on financials is essential, adding new construction KPIs that relate to safety, quality, performance and staff are key to understanding your project’s full story. In time, this will allow for better control of costs and schedule and increase your company’s bottom line.